1. McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

2. Describe four unique elements of services. LO1 Recognize how services differ and how they can be classified. Explain how consumers purchase and evaluate services. LO3 LO2 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 12, YOU SHOULD BE ABLE TO: Develop a customer contact audit to identify service advantages. LO4 12-2

3. Discuss the important roles of internal marketing and customer experience management. LO5 Explain the role of the four Ps in the services marketing mix. LO6 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 12, YOU SHOULD BE ABLE TO: 12-3

4. SPACE TOURISM TAKES OFF! 12-4

5. FIGURE 12-1 FIGURE 12-1 Services are now a larger part of the U.S. gross domestic product (GDP) 12-5

6. THE UNIQUENESS OF SERVICES Slide 12-6

7. THE UNIQENESS OF SERVICES THE FOUR I’S OF SERVICES LO1  Four I’s of Services Four I’s of Services Intangibility Inseparability Inconsistency Inventory  Idle Production Capacity Idle Production Capacity 12-7

8. FIGURE 12-A FIGURE 12-A The 4 I’s of services 12-8

9. THE UNIQUENESS OF SERVICES Slide 12-6 The Four I’s of Services 1.IntangibilityIntangibility They cannot be held, touched, or seen before the purchase decisionThey cannot be held, touched, or seen before the purchase decision Difficult for consumers to evaluate as they tend to be a performance rather than an objectDifficult for consumers to evaluate as they tend to be a performance rather than an object Marketers need to make services tangible or show their benefitsMarketers need to make services tangible or show their benefits

10. THE UNIQUENESS OF SERVICES Slide 12-6 The Four I’s of Services 2.InconsistencyInconsistency Services depend on the people who provide them – their quality varies with each person's capabilities and day-to-day performanceServices depend on the people who provide them – their quality varies with each person's capabilities and day-to-day performance More of a problem with services than with tangible goods – problems can be reduced through standardization and trainingMore of a problem with services than with tangible goods – problems can be reduced through standardization and training

11. THE UNIQUENESS OF SERVICES Slide 12-6 The Four I’s of Services 3.InseparabilityInseparability Consumers cannot (and do not) separate the deliverer of the service from the service itselfConsumers cannot (and do not) separate the deliverer of the service from the service itself The amount of interaction between the consumer and the service provider depends on the extent to which the consumer must be present to receive the serviceThe amount of interaction between the consumer and the service provider depends on the extent to which the consumer must be present to receive the service Some services, such as banking, can now be delivered electronically, often requiring no face-to-face consumer interaction and therefore a more consistent experienceSome services, such as banking, can now be delivered electronically, often requiring no face-to-face consumer interaction and therefore a more consistent experience

12. THE UNIQUENESS OF SERVICES Slide 12-6 The Four I’s of Services 4.InventoryInventory Inventory problems exist with goods because many items are perishable and there are costs associated with its handlingInventory problems exist with goods because many items are perishable and there are costs associated with its handling With services, inventory costs are more subjective and are related to idle production capacity (the service provider is available but there is no demand)With services, inventory costs are more subjective and are related to idle production capacity (the service provider is available but there is no demand)

13. THE UNIQUENESS OF SERVICES Slide 12-6 The Four I’s of Services 4.Inventory, cont.Inventory, cont. The inventory cost of a service is the cost of the person used to provide the service along with any needed equipmentThe inventory cost of a service is the cost of the person used to provide the service along with any needed equipment –Inventory costs can be low or nonexistent because idle production capacity can be cut back through reducing hours or paying by commissionInventory costs can be low or nonexistent because idle production capacity can be cut back through reducing hours or paying by commission –Inventory carrying costs of service vary widely, from the high-end airlines and hospitals with highly trained, salaried specialists to the low-end of real estate agencies and hair salons with employees working on commission and needing little expensive equipmentInventory carrying costs of service vary widely, from the high-end airlines and hospitals with highly trained, salaried specialists to the low-end of real estate agencies and hair salons with employees working on commission and needing little expensive equipment

14. FIGURE 12-2 FIGURE 12-2 Inventory carrying costs of services depend on the cost of employees and equipment 12-14

15. Lufthansa, American Express, and Allstate What 4 I’s of services element? LO1 12-15

16. THE UNIQENESS OF SERVICES THE CONTINUUM & CLASSIFICATION OF SERVICES LO2 Service Continuum 12-16

17. THE UNIQUENESS OF SERVICES Slide 12-12 The Service Continuum – range from the tangible to the intangibleThe Service Continuum – range from the tangible to the intangible –Tangible, good-dominant offerings, four I’s are not relevantTangible, good-dominant offerings, four I’s are not relevant –Intangible, service-dominated offerings: four I’s are major marketing concernsIntangible, service-dominated offerings: four I’s are major marketing concerns –Some businesses are a mix of intangible service and tangible good factorsSome businesses are a mix of intangible service and tangible good factors

18. THE UNIQUENESS OF SERVICES Slide 12-12 The Service Continuum –For businesses today, it is useful to distinguish between core product and supplementary servicesFor businesses today, it is useful to distinguish between core product and supplementary services –Supplementary services allow service providers to differentiate their offering from competitors – add valueSupplementary services allow service providers to differentiate their offering from competitors – add value –Key categories include; information delivery, consultation, order taking, billing procedures, and payment optionsKey categories include; information delivery, consultation, order taking, billing procedures, and payment options

19. FIGURE 12-3 FIGURE 12-3 Service continuum Slide 12-13

20. THE UNIQENESS OF SERVICES THE CONTINUUM & CLASSIFICATION OF SERVICES LO2 Classifying Services Delivery by People or Equipment Profit or Nonprofit Organizations Government Sponsored 12-20

21. THE UNIQUENESS OF SERVICES Slide 12-12 Classifying Services –Delivery by People or EquipmentDelivery by People or Equipment Professional to unskilled labor Equipment-based services do not have inconsistency concernsEquipment-based services do not have inconsistency concerns –Profit or Not-for-profitProfit or Not-for-profit Not-for-profit organizations net profits are not taxed or distributed to shareholdersNot-for-profit organizations net profits are not taxed or distributed to shareholders 1.1 million generate 7 percent of GDP –Government SponsoredGovernment Sponsored Federal, state, and municipal/local levels

22. FIGURE 12-4 FIGURE 12-4 Services can be classified as equipment-based or people-based 12-22

23. Red Cross, U.S. Postal Service, and Susan G. Komen Race for the Cure What is the classification of each service? LO2 12-23

24. Slide 12-20 Concept Check A : intangibility, inconsistency, inseparability, and inventory 1. What are the four I’s of service?

25. Slide 12-21 Concept Check 2. Would inventory carrying costs for an accounting firm with certified public accountants be (a) high, (b) low, or (c) nonexistent? A : (a) high because the inventory cost of a service is the cost of paying the person used to provide the service: the salary of the accountant.

26. Slide 12-22 Concept Check 3. To eliminate service inconsistencies, companies rely on _____________ and _______. standardization training

27. HOW CONSUMERS PURCHASE SERVICES LO3  The Purchase Process Search Properties Experience Properties Credence Properties 12-27

28. HOW CONSUMERS PURCHASE SERVICES Slide 12-23 The Purchase Process –Service organizations must understand how consumer makes service purchase decision –Services cannot be displayed, or demonstrated – consumers cannot make prepurchase evaluation of all characteristics –Evaluation of a service may change with each purchase

29. Slide 12-24 FIGURE 12-5 FIGURE 12-5 How consumers evaluate goods and services

30. HOW CONSUMERS PURCHASE SERVICES Slide 12-23 The Purchase Process –To reduce uncertainty created by these properties, consumers turn to personal sources of information – early adopters, opinion leaders, and reference groups during the purchase decision process

31. HOW CONSUMERS PURCHASE SERVICES LO3  Assessing Service Quality Gap Analysis Monitoring Service Failure 12-31

32. HOW CONSUMERS PURCHASE SERVICES Slide 12-25 Assessing Service Quality –Gap Analysis – differences between consumer expectations and experiences on dimensions of service quality –Expectations are influenced by: word-of-mouth, personal needs, past experiences, and promotional activities –Actual experiences are determined by the way an organization delivers its service –Relative importance of various dimensions of service quality varies by type of service

33. Slide 12-27 What if Someone Complains? How Services Can Recover From Failure to Satisfy a Customer Many service companies have developed strategies to encourage customer satisfaction and loyalty. However, every company has some service failures that lead to customer complaints. How can services recover from these situations? Professors Stephen Tax and Stephen Brown suggest four steps: 1.Identify service failures. Only 5 to 10 percent of dissatisfied customers actually complain—the rest switch firms or make negative comments. Firms must encourage customer feedback. 2.Resolve customer problems. A key to resolving complaints is training employees, especially those on the front line, to handle likely situations and giving them authority to solve problems.

34. Slide 12-27 What if Someone Complains? How Services Can Recover From Failure to Satisfy a Customer 3.Communicate and classify service failures. This step reflects the concept of organizational learning, or the capacity to improve performance based on experience. 4.Integrate data and improve overall service. Ongoing customer research must be integrated with complaint information to identify areas for service quality improvement. Many firms are improving their methods of dealing with complaints. In virtually every company, the goal of a complaint process is to obtain customer satisfaction, maintain loyalty, and learn from failure

35. FIGURE 12-6 FIGURE 12-6 The five dimensions of service quality 12-35

36. HOW CONSUMERS PURCHASE SERVICES LO4  Customer Contact and Relationship Marketing Customer Contact Audit Service Encounters A Customer’s Car Rental Activities Relationship Marketing 12-36

37. HOW CONSUMERS PURCHASE SERVICES Slide 12-28 Customer Contact and Relationship Marketing - customers judge services on “service encounters” –Customer Contact Audit – flow chart of the points of interaction between customer and service provider –Serve as basis for developing relationships with customers –There are points where customer sees tangible and intangible aspects of the service that are essential but do not involve points of customer interaction

38. FIGURE 12-7 FIGURE 12-7 Customer contact audit for a car rental agency (green boxes = customer activity; orange boxes = employee activity) 12-38

39. MANAGING THE MARKETING OF SERVICES LO5  Internal Marketing Internal Marketing  Customer Experience Management (CEM) Customer Experience Management (CEM) 12-39

40. MANAGING THE MARKETING OF SERVICES Slide 12-32 Internal Marketing – service organizations must focus on its employeesInternal Marketing – service organizations must focus on its employees –Ensure employees have attitudes, skills and commitment needed to meet customer expectationsEnsure employees have attitudes, skills and commitment needed to meet customer expectations –Employee development through recruitment, training, communication, coaching, management, and leadership are criticalEmployee development through recruitment, training, communication, coaching, management, and leadership are critical

41. MANAGING THE MARKETING OF SERVICES Slide 12-32 I.Product (Service) – three aspects of the marketing mix that warrant special attention:Product (Service) – three aspects of the marketing mix that warrant special attention:

42. MANAGING THE MARKETING OF SERVICES Slide 12-32 1.ExclusivityExclusivity –Major difference is that services cannot be patentedMajor difference is that services cannot be patented –Many businesses try to distinguish their core product with new or improved supplementary servicesMany businesses try to distinguish their core product with new or improved supplementary services

43. MANAGING THE MARKETING OF SERVICES Slide 12-32 2.BrandingBranding –Because services are intangible, the brand name or identifying logo of the service organization is particularly important in consumer purchase decisionBecause services are intangible, the brand name or identifying logo of the service organization is particularly important in consumer purchase decision

44. MANAGING THE MARKETING OF SERVICES Slide 12-32 3.Capacity ManagementCapacity Management –Most services have limited capacity due to the inseparability of the service from the service provider and the perishable nature of the serviceMost services have limited capacity due to the inseparability of the service from the service provider and the perishable nature of the service –Capacity management integrates the service component of the marketing mix with efforts to influence customer demandCapacity management integrates the service component of the marketing mix with efforts to influence customer demand –Service organizations must manage availability of the offering so that:Service organizations must manage availability of the offering so that: Demand matches capacity over the duration of the demand cycle (one day, week, month, year)Demand matches capacity over the duration of the demand cycle (one day, week, month, year) Organization’s assets are used in ways that will maximize the ROIOrganization’s assets are used in ways that will maximize the ROI –Some providers develop differing price structures that are assigned to each segment of consumers to help moderate or adjust demandSome providers develop differing price structures that are assigned to each segment of consumers to help moderate or adjust demand

45. MANAGING THE MARKETING OF SERVICES Slide 12-32 II.Pricing plays two essential roles in services:Pricing plays two essential roles in services: 1.Affect consumer perceptions – can indicate qualityAffect consumer perceptions – can indicate quality 2.Be used in capacity management – many use off-peak pricing to reflect variations in demandBe used in capacity management – many use off-peak pricing to reflect variations in demand

46. MANAGING THE MARKETING OF SERVICES Slide 12-32 II.Price – price is referred to in various ways by different services:Price – price is referred to in various ways by different services: –Hospitals – chargesHospitals – charges –Lawyers – feesLawyers – fees –Airlines – faresAirlines – fares –Hotels - ratesHotels - rates

47. MANAGING THE MARKETING OF SERVICES Slide 12-32 III.Place (Distribution)Place (Distribution) –Historically little attention has been paid to distributionHistorically little attention has been paid to distribution –As competition grows, the value of conventional distribution, or access, is being recognizedAs competition grows, the value of conventional distribution, or access, is being recognized –Availability of electronic distribution through the internet now provides global coverage for a variety of servicesAvailability of electronic distribution through the internet now provides global coverage for a variety of services

48. MANAGING THE MARKETING OF SERVICES Slide 12-32 IV.PromotionPromotion –the value of promotion, specifically advertising, is to show the benefits of purchasing the service by stressing availability, quality, location, etc.the value of promotion, specifically advertising, is to show the benefits of purchasing the service by stressing availability, quality, location, etc. –Publicity has played a major role in the promotional strategy of not-for-profit services and some professional organizationsPublicity has played a major role in the promotional strategy of not-for-profit services and some professional organizations –Many use PSAsMany use PSAs

49. Slide 12-32 1.TechnologyTechnology –New e-services will include voice-over- Internet (telephone), home videoconferencing, and new forms of security and identification (e.g., fingerprint and retinal scans)New e-services will include voice-over- Internet (telephone), home videoconferencing, and new forms of security and identification (e.g., fingerprint and retinal scans) –New Internet-based services also make it possible to obtain videos, movies, and textbooks electronicallyNew Internet-based services also make it possible to obtain videos, movies, and textbooks electronically SERVICES IN THE FUTURE

50. Slide 12-32 2.Global EconomyGlobal Economy –Increasing attention to the cross-cultural implications for service qualityIncreasing attention to the cross-cultural implications for service quality –Shifting from the focus on goods and tangible resources to services and intangible attributesShifting from the focus on goods and tangible resources to services and intangible attributes SERVICES IN THE FUTURE

51. Services Services are the intangible activities or benefits that an organization provides to consumers in exchange money or something else of value. 12-51

52. Four I’s of Services The four I’s of services consists of the four unique elements to services: intangibility, inconsistency, inseparability, and inventory. 12-52

53. Idle Production Capacity Idle production capacity occurs when the service provider is available but there is no demand. 12-53

54. Service Continuum The service continuum consists of the range of offerings companies bring to the market, from the tangible to the intangible or good-dominant to service- dominant offerings. 12-54

55. Gap Analysis Gap analysis is a type of analysis that identifies the differences between a consumer’s expectations about and experiences with a service based on dimensions of service quality. 12-55

56. Customer Contact Audit A customer contact audit is a flowchart of the points of interaction between consumers and a service provider. 12-56

57. Internal Marketing Internal marketing is the notion that a service organization must focus on its employees, or internal market, before successful programs can be directed at customers. 12-57

58. Customer Experience Management (CEM) Customer experience management (CEM) is the process of managing the entire customer experience within the company. 12-58

59. Capacity Management Capacity management integrates the service component of the marketing mix with efforts to influence consumer demand. 12-59

60. Off-Peak Pricing Off-peak pricing involves charging different prices during different times of the day or days of the week to reflect variations in demand for the service. 12-60